Power And Utility Companies Prepare For Disruptive Technologies

Jim Manning

a year ago

The power and utilities sector has realized the importance of preparing to deal with disruptive technologies. London-based company EYGM Limited conducted a telephone survey of 50 utilities with large distribution networks around the globe. They found that 92% of the companies interviewed were planning to invest in digital grid within the next 12 months. Digital grid is the digitization of electricity, water, and gas networks, and $500-billion is expected to be invested into it, within the next 5-7 years.

Companies are looking into digital grid technology, in part, due to the rapid expansion of renewable energy. With an increase in non-traditional utility suppliers and distributors, the entire energy sector is likely to transform. The report by EYGM highlights some actions utilities are taking to handle the disruption from new entrants into the energy field. These include the creation of a virtual power plant based on battery storage, and testing blockchain for electric vehicle charging.

With the invention of batteries like Tesla’s powerwall, the average person will need to rely on the traditional power grid less and less. In the not too distant future, efficient solar cells will be able to power a person’s home, potentially storing a surplus in a large home battery. Through blockchain-based technology, a person could even sell their surplus power on microgrid open markets. This concept is currently being tackled by New York-based LO3 Energy, through use of Ethereum smart contracts. They hope to use Ethereum’s blockchain to facilitate peer-to-peer energy transfers.

Blockchain has already shown promise in regards to electric vehicle charging, like with Share & Charge, which is already beta testing in Germany. Payments to private energy providers are all handled on Ethereum’s blockchain. If test cases like this continue to succeed, this should lead to wider adoption across many facets of the industry.

See the full press release below:

LONDON, Nov. 14, 2016 /PRNewswire/ -- Digital grid is becoming a primary focus area for the global power and utilities sector, with 92% of companies surveyed planning to invest in the next 12 months, according to a new EY report, Digital grid: powering the future of utilities. In the next 5 to 7 years, investment in digital grid is expected to be in the region of US$500b.

Forty-six percent of respondents confirmed that digital grid – the digitization of electricity, gas and water networks – is a top strategic program or a target for investment over the next year. Growth in renewables (72%), improvement in infrastructure operations and performance (72%) and cybersecurity risks (60%) were cited as the primary drivers for investment in this area.

"Today's power-hungry world demands more resilience and flexibility from the grid. Digital grid will serve as the backbone for smarter, more reliable future energy systems – and that fact is not lost on utilities. The acceleration of renewables, connected homes and devices, competition from new entrants and other disruptive forces are compelling utilities to prioritize digital grid. And we're seeing that reflected in large-scale, widespread investment programs."

Utilities cite three primary barriers to digital grid adoption

An equal number of survey respondents (48%) identified difficulty making a business case, immature technologies and supplier inexperience, and a lack of understanding of the implications as the top barriers to digital grid adoption.

Micallef says: "These barriers are not unexpected given the rate of change in the utilities sector, the level of disruptive innovation and pressure on the international supply chain to keep up and service global concurrent demand."

Fifty-six percent of respondents agree that non-traditional utility entrants will completely transform the sector. These new competitors – from telecommunication and technology companies to energy aggregators and energy service companies – are investing in offerings that have the potential to erode traditional utilities' returns on digital grid investment. This includes connected home products, home energy management solutions and off-grid solutions among other products.

Micallef says: "Competition from new entrants is proving particularly disruptive to utilities, which are traditionally averse to risk and encumbered by regulation. Our survey results indicate that digital grids may be falling victim to this disruption, with 24% of utilities citing competition from non-utility entrants as a top three risk. While it is clear that utilities are feeling the pressure, some are grabbing the bull by the horns and investing in innovative solutions to meet changing customer expectations, drive growth and move toward the digital grid era."

The report highlights innovative approaches undertaken by utilities to manage disruption from new entrants, including developing a virtual power plant based on battery storage, promoting a "bring your own battery" business model and testing blockchain for electric vehicle charging.

Micallef says: "The utility of the future will need to operate in a new value chain, augmented and interconnected by digital technologies, where power and information flows in both directions. Digital grid is crucial to achieving this future state but, in a sector that is still struggling to define exactly what a digital grid is, there is a long journey ahead to unlock its full value. Utilities can lay the foundation for value creation by defining clear objectives and identifying the true scope of the business change required to make digital grid a reality."

Notes to Editors

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

About EY's Global Power & Utilities Sector

In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY's Global Power & Utilities Sector brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Sector team works to anticipate market trends, identify their implications and develop points of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.

For more information, please visit ey.com/powerandutilities.

About the report

Digital grid is the digitization of electricity, gas and water networks using advanced technology. It allows two-way communication between the utility and the network, including its customers, and enables insight, automation and control across the utilities operations, empowering utilities to improve reliability, availability and efficiency of the grid.

To identify the current state of digital grid, EY commissioned research based on telephone interviews in September 2016 with 50 utilities with large distribution networks. The 50 respondents were either stand-alone distribution system operators or part of a vertically integrated utility.

Geographically, 52% of respondents were based in Europe, 20% in the Americas, 10% in the Asia-Pacific region, and 18% in the Middle East and Africa. In terms of size, 66% of utilities surveyed had more than 500,000 customers.

Of those interviewed, 12% were from the C-suite; the remainder were digital grid leaders in operational or management positions.